Mortgage interest tax relief changes explained

March 5, 2023
This guide was last updated on:
February 18, 2023

Implications for Landlords of the new rules

Until recently, many people invested in buy to let properties because a buy to let mortgage gave them good profit margins and a major tax advantage. They could deduct the amount of their mortgage before they declared their rental income to HMRC, thereby reducing their tax bill.

From 6th April 2020 Landlords will no longer be allowed to deduct their mortgage interest payments from their tax liability. This means the potential significant saving is no longer available, because the total amount of rental income they receive will need to be declared as taxable income. This loss of mortgage interest tax relief could make the property rental sector a much less profitable prospect, particularly for a private landlord who may even need to consider raising rents to cover the shortfall.  

Changes to tax relief

Instead of the previous tax relief, you will now be given a 20% tax credit, which will be 20% of your mortgage interest payment.  

If you pay tax at the basic rate of 20% this will not affect you. Higher rate payers and additional rate taxpayers will see an increase in their tax liability because the tax credit will only refund tax at the basic rate of 20%. They will not get all of the tax back on their mortgage repayments. 

If you as a Landlord now have to declare the full rental income you receive, it may even push you up into a higher or additional rate tax bracket. 

Example of Mortgage Interest Tax Relief

For detailed examples of tax relief changes across England, Scotland and Wales, click here:


Who will be affected?

The change from mortgage interest tax relief to a 20% tax credit will only affect a private landlord. These are individuals or a couple who rent out their own properties on private basis, as opposed to renting through a business.  

If a landlord is running a property rental business, for tax purposes they will be able to continue to deduct the amount of mortgage interest they are paying from the amount of rental income they receive. 

However, there are more costs involved in a property rental business which might be more than the mortgage interest tax saving, and the tax regulations for such businesses are more complex.  

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